Research on the Impact of Politically Associated Tokens on the Crypto Assets Market

Recently, the journal Economics Letters published a research paper titled “From Zero to Hero: The Spillover Effects of Meme Tokens in the Crypto Assets Market.” The article analyzes the impact of a political figure issuing a Meme Token event, revealing the heterogeneity of volatility spillover effects driven by market sentiment and fundamentals. This event highlights the increasingly important role of political factors in shaping the Crypto Assets market and investor behavior.

Introduction

The impact of political dynamics on the financial markets is becoming increasingly significant, and the crypto assets market has emerged as an important area where politics and finance intersect. The 2024 U.S. presidential election further highlights this relationship, as a certain Republican candidate has rarely turned to support digital assets. He stated that he wants to make the U.S. the “global capital of cryptocurrency” and place crypto assets at the core of his economic agenda, thereby triggering market expectations for more friendly policy positions.

These expectations were realized on January 18, 2025, when the candidate issued the official Meme coin on the Solana blockchain. Within 24 hours, the price of the coin skyrocketed by 900%, with a trading volume reaching $18 billion and a market capitalization exceeding the then-largest Meme coin DOGE by $4 billion. The next day, the issuance of the Meme coin related to his wife further fueled the market speculation frenzy. These events were not only speculative in nature but also constituted a significant exogenous shock, with impacts that extended beyond financial speculation and released broader regulatory and political signals.

This study aims to examine how this event serves as a political signal and affects the Crypto Assets market. It focuses on three questions:

1. How does the release of this Meme coin affect the returns and volatility of major Crypto Assets?
2. Did this event trigger a financial contagion effect in the Crypto Assets market?
3. Does this impact exhibit heterogeneity, manifested as different responses from various crypto assets based on their technological foundations, uses, or speculative appeal?

To answer these questions, this article uses the BEKK-MGARCH model to analyze the top ten crypto assets by market capitalization. The research finds that after the release of the Meme coin, there is a significant volatility spillover effect among crypto assets, indicating the presence of financial contagion in the market. The event triggered a significant shift in market dynamics, with Solana and Chainlink recording the largest gains due to their infrastructure and strategic connections. Mainstream crypto assets such as Bitcoin and Ethereum demonstrated strong resilience, with their cumulative abnormal returns and variance stabilizing in the later stages of the event. In contrast, other Meme coins such as Dogecoin and Shiba Inu experienced depreciation, and funds likely shifted towards the newly issued Meme coins.

Indeed, the issuance of this Meme Token occurred in an environment of high political polarization in the United States, and the brand associated with it is closely tied to strong political sentiments, thereby increasing investor sensitivity and exacerbating market reactions. For some investors, this endorsement symbolizes a unique speculative opportunity, giving rise to a strong “herd effect”; while other investors, aware of the political and regulatory risks due to its controversial image, take a more cautious stance. This polarization explains the observed high volatility and differentiated market reactions—from enthusiasm for expected political support to skepticism about reputation and political uncertainty.

This study is the first to analyze the impact of politically connected Tokens on the Crypto Assets market. It expands the understanding of how political narratives influence decentralized financial markets. Moreover, unlike previous studies that have mainly focused on negative shocks, this research concentrates on the effects of positive shocks driven by political signals on the market. Notably, there is evidence suggesting that positive shocks have a greater impact on the volatility of Crypto Assets than negative shocks. Ultimately, this study provides important references for academia, practitioners, and policymakers, revealing the heterogeneity of market reactions to politically connected Tokens and emphasizing how asset characteristics influence financial contagion dynamics.

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Data and Methods

2.1 Data and Sample Selection

This study used proprietary data on the minute closing mid-prices of the 10 most representative Crypto Assets among the top 20 by market capitalization, including Bitcoin, Ethereum, Ripple, Solana, Dogecoin, Chainlink, Avalanche, Shiba Inu, Polkadot, and Litecoin. The data was sourced from a centralized exchange platform in the United States, obtained from the LSEG Tick History database.

The dataset contains 20,160 observations, covering the time period from January 11 to January 25, 2025, and includes the release of the Meme coin ( around January 18, 2025, ) one week before and after. This study uses logarithmic returns and defines the event time as January 18, 2025, at 2:44 AM UTC. Cumulative abnormal returns ( CARs ) are used to assess the information cascade effect, with benchmark returns based on the average returns from January 1 to January 10, 2025.

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2.2 Method

This article uses the BEKK-MGARCH model to analyze the impact of the launch of Meme coin on the Crypto Assets market. It is assumed that the logarithmic returns follow a normal distribution with a mean of zero and a conditional covariance matrix of Ht. A more stringent significance level of α=0.001 is used for the contagion effect test.

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Result

3.1 Volatility Spillover Effect

Preliminary analysis results show that the interconnection among crypto assets significantly increased after the event, supporting the hypothesis of “event-driven volatility spillover effects”. The increased volatility of the stationary logarithmic returns reflects a rise in market instability and a faster adjustment speed.

The estimation results of the BEKK-MGARCH model indicate that the event did indeed trigger financial contagion and volatility spillover effects in the Crypto Assets market. Most of the covariance coefficients in the later stages of the events are significant at the 0.001 level, especially among ETH, SOL, and LINK. Although SHIB and DOT reached a significance level of 0.01, their impact is relatively weak. The covariance of LTC and XRP actually decreased after the event, indicating that the spillover effects are not evenly distributed. Overall, the results highlight the structural impact of the Meme coin issuance on the entire Crypto Assets market.

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3.2 Information Cascade Effect

Cumulative abnormal returns ( CARs ) analysis further reveals the information cascade effect triggered by the issuance of Meme coins. The results indicate that this event has a significant structural impact on market dynamics, manifested as asset-specific response paths and increased volatility.

In the pre-event phase, most Crypto Assets experienced positive returns, possibly driven by speculative expectations. After the event occurred, three key dynamics emerged:

1. SOL performed excellently, surpassing all other assets, possibly due to its role as a Meme coin supporting the blockchain.
2. LINK has also performed strongly, possibly related to its association with a large American technology company.
3. Mature Crypto Assets such as Bitcoin, Ethereum, Ripple, and Litecoin have gradually stabilized after a moderate increase, reflecting their market resilience.

At the same time, other Meme coins like DOGE and SHIB are showing weakness, exhibiting an asset substitution effect. Although AVAX and DOT have a technical foundation, they have not been immune to the trend of capital transfer.

Research findings reveal that asset-specific narratives, technological relevance, and investors' subjective perceptions can significantly amplify the differential responses of asset returns during major information shocks.

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Conclusion

This study examines the impact of cryptocurrency issuance related to political figures on the crypto market, focusing on the volatility spillover effect and the information cascade effect.

The results indicate significant heterogeneity in market reactions. Blockchain technology that is directly related benefits significantly, and assets that share underlying infrastructure also receive a boost. Mainstream Crypto Assets exhibit stronger stability, serving as a market anchor. This suggests that investor sentiment is no longer solely dependent on technical factors, but is also significantly influenced by geopolitical and policy narratives.

In summary, this article reveals the high sensitivity of the crypto assets market to external events and its tendency to be driven by speculative behavior. As digital assets increasingly intertwine with political and economic issues, it is particularly important to continuously monitor this interaction to understand its impact on market stability.

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